Allotting New Shares and the Return of Allotment

Issuing new shares in a Sdn Bhd looks like a board decision. It is not. Under the Companies Act 2016 an allotment made without the members’ prior approval is void — not voidable, not irregular, void — and the director who authorised it is personally on the hook for the loss.

That is the single most consequential fact in this area, and it is the step most frequently skipped when a founder wants to bring in an investor quickly.

Directors need members’ approval to allot

Section 75(1) prohibits directors from exercising any power to:

• (a) allot shares in the company;
• (b) grant rights to subscribe for shares;
• (c) convert any security into shares; or
• (d) allot shares under an agreement or option or offer

unless prior approval by way of resolution by the company has been obtained.

Note the breadth. It is not just the allotment itself — granting an option, agreeing a convertible note, or issuing a subscription right all fall within the prohibition. The approval must be prior; ratifying afterwards does not cure s.75(4).

Section 290(3) supplies the resolution type: where the Act does not specify, and the constitution is silent, an ordinary resolution suffices.

The four exceptions in s.75(2)

Exception	What it covers
(a)	An allotment or grant of rights under an offer to members in proportion to their shareholdings
(b)	An allotment or grant on a bonus issue to members in proportion to their shareholdings
(c)	An allotment to a promoter of the company that the promoter agreed to take
(d)	Shares issued as consideration for the acquisition of shares or assets, where members were notified of the intention at least 14 days before the issue

Exception (a) is the workhorse: a genuinely pro-rata rights issue does not need a separate approval resolution, because nobody’s proportion moves.

Exception (d) has its own machinery. Section 75(3) deems members notified if a statement explaining the purpose of the intended issue has been sent to every member at their last known address in the register and advertised in one widely circulated Malay-language newspaper and one English-language newspaper in Malaysia. Both limbs, not either.

What happens if you get it wrong

Section 75(4): the issue is void and the consideration is recoverable accordingly.

Section 75(5): a director who knowingly contravenes, or permits or authorises the contravention, or fails to take all reasonable steps to prevent it, is liable to compensate the company and the person to whom the shares were issued for any loss, damages or costs sustained.

Section 75(6): notwithstanding the Limitation Act 1953, no proceedings to recover may be commenced after three years from the date of the issue.

The practical exposure is not the fine — it is the investor who paid RM500,000 for shares that were never validly issued, and who now has a statutory claim against the directors personally.

Where an issue has already gone wrong, s.108 gives a route out: the Court may validate an issue or allotment, or confirm its terms, on the application of the company, a shareholder, a mortgagee of the shares or a creditor, where it is just and equitable to do so. Section 108(3) deems the shares validly issued once the order is lodged with the Registrar.

The approval has a shelf life

An approval under s.76(1) may be confined to a particular exercise of the power or apply generally, and may be unconditional or conditional.

It must be lodged with the Registrar within 14 days of the date of the approval — s.76(2). This is a filing people forget entirely, and s.76(6) carries the heaviest penalty in the subdivision: a fine up to RM500,000 plus RM1,000 per day for a continuing offence.

Expiry under s.76(3):

• Where the company must hold an AGM — at the conclusion of the next AGM after the approval was given, or at the expiry of the period within which that AGM must be held, whichever is earlier
• Where the company is not required to hold an AGM — not more than 12 months after the approval was given

Since a private company has no statutory AGM duty under s.340, the practical rule for most Sdn Bhds is a 12-month shelf life.

Section 76(4) allows revocation or variation by resolution at any time. Section 76(5) preserves an allotment made after expiry where the shares are allotted under an agreement, option or offer made before expiry, and the approval permitted the company to make it.

Pre-emption on a new issue: section 85

Section 85(1) is the default protection for existing shareholders:

Subject to the constitution, where a company issues shares which rank equally to existing shares as to voting or distribution rights, those shares shall first be offered to the holders of existing shares in a manner which would, if the offer were accepted, maintain the relative voting and distribution rights of those shareholders.

Three practical points.

It is subject to the constitution. A constitution may exclude or modify it. Where there is no constitution, s.85 applies in full — which is the opposite of the position on transfers, where the absence of a constitution means no pre-emption at all.

It only bites on shares ranking equally as to voting or distribution. An issue of a genuinely different class — a non-voting preference share, for instance — falls outside s.85(1) on its face, though it will usually engage the class rights machinery in ss.88 to 96 instead.

The offer must be in a notice. Section 85(2) requires the notice to specify the number of shares offered and the time frame within which the offer, if not accepted, is deemed declined. Section 85(3) then lets the directors dispose of the unaccepted shares in the manner most beneficial to the company.

This is the step skipped most often in practice. A founder issuing shares to a new investor at the same rank as the existing ordinary shares must first offer them to the existing holders, unless the constitution says otherwise or the members’ resolution approving the issue disapplies it.

The filings after allotment

Three duties, all 14 days, all separate.

1. Register of members — s.77(1). The company shall register an allotment in the register of members referred to in s.50 within 14 days from the date of the allotment. Fine up to RM50,000 plus RM500 per day under s.77(2).

2. Return of allotment — s.78(1). Lodge with the Registrar within 14 days from an allotment. Section 78(2) requires it to include a statement of capital as at the date of allotment and state:

• (a) the number and amount of shares comprised in the allotment
• (b) the amount paid, deemed paid, or due and payable on each share
• (c) the class, where the capital is divided into different classes
• (d) the full name and address of each allottee and the number and class allotted

Section 78(3) relieves a public company falling within s.68(7) from limb (d) where shares were allotted to more than 500 persons.

3. Notification of the change in the register — s.51(1). Within 14 days of the change. Fine up to RM20,000 plus RM500 per day.

Non-cash consideration

Where shares are allotted as fully or partly paid up otherwise than in cash under a written contract, s.78(4) requires the contract, or a certified copy, to be lodged with the return. Under s.78(5), if a certified copy is lodged, the original duly stamped contract must be produced to the Registrar on request.

Where the allotment is not under a written contract — an oral contract, an allotment under the constitution, shares issued in satisfaction of a declared dividend not payable in cash, or a capitalisation of reserves — s.78(6) requires a statement in the particulars the Registrar determines to be lodged with the return instead.

The stamping reference in s.78(5) matters. A non-cash subscription agreement is an instrument like any other, and the Stamp Act 1949 clock runs on it independently.

Related capital changes

Altering share capital is a separate power. Section 84(1) allows a company, unless the constitution provides otherwise, to consolidate and divide, convert paid-up shares into stock and reconvert, or subdivide its shares, by passing a resolution. Section 84(2) requires the notice of alteration to be lodged with the Registrar within 14 days.

Where the issue takes the company past a control threshold, the beneficial ownership clocks run too — s.60C(4) entry in the internal register within 14 days of receipt, then s.60B(3) and (4) lodgement through e-BOS within 14 days of that entry.

Common mistakes

Allotting first and papering it later. Section 75(1) requires prior approval. Section 75(4) makes the issue void, and there is no ratification provision.

Assuming a rights issue needs a fresh approval. It does not, if it is genuinely pro-rata — s.75(2)(a).

Forgetting to lodge the approval itself. Section 76(2), 14 days, and the largest penalty in the subdivision at RM500,000 plus RM1,000 per day.

Relying on a stale approval. For a Sdn Bhd with no AGM, the approval dies at 12 months under s.76(3)(b).

Skipping the s.85 offer. Where the new shares rank equally and the constitution is silent, the existing holders must be offered them first, in a notice specifying the number and the deadline.

Using only one newspaper for the s.75(2)(d) exception. Section 75(3)(b) requires one Malay-language and one English-language paper, plus individual notice to every member.

Treating the return of allotment as covering the register. Sections 77, 78 and 51 are three duties. Filing the return does not enter anything in your own register.

Forgetting the contract on a non-cash issue. Section 78(4) requires it lodged with the return, and s.78(5) may call for the stamped original.

What’s next

Before the money moves, confirm three things: that a valid and unexpired s.75 approval exists, that it has been lodged under s.76(2), and that either s.85 has been complied with or the constitution disapplies it. Everything after allotment is calendar work.

For the mirror-image transaction — an existing member selling — see share-transfer. For what the register must contain, see register-of-members. For taking capital back out of the company, see capital-reduction.